This document discusses managing the total cost of risk and controlling price through effective risk management. It outlines identifying exposures through qualitative and quantitative analysis. Control measures are then implemented to mitigate exposures, such as loss control programs and fraud prevention. Risk is transferred through insurance or retained using self-insurance. Ongoing monitoring is needed as exposures change over time. The goal is to structure a risk management program that protects the organization, personnel, property, and net income by addressing all aspects of risk.

1. Risk Insights
Manage Cost of Risk, Control Price
Every facet of your organization affects your cost of risk. It is difficult, at
best, to quantify all aspects of this total cost of risk. For example, if you
manufacture specialty equipment or products and you are faced with a
recall, what is your loss of reputation or market share? In contrast, other
components of your total cost of risk are easily quantifiable, such as
insurance premiums, or the downtime of a custom piece of machinery and
the resulting lost production.
Total cost of risk is an insurance term describing the cost of both pure and
speculative risk. Additionally, cost of risk is synonymous with price — the
price of your risk management program. We at Odell Studner take a total
cost of risk approach to positively affect your price.
Our goal is to structure a risk management program that protects the four
main asset categories of your business:
• Organization
• Personnel
• Property
• Net income
The structure of your risk management program looks to the endgame of
your price. To reach the endgame you seek, we must first further define Risk
Management into four key tenets:
• Identification of exposures through analysis;
• Implementation of control measures to those exposures;
• Risk transfer or financing; and
• Management of current and future exposures.

2. Identification of Exposures
Exposures are both qualitative and quantitative. Conversely, if your company has a 20+ year
Analyses into both arenas offer the starting history, there are also risks, including becoming
foundation of understanding your current obsolete, stagnant, or too conservative with your
exposures to develop forward-thinking business plan.
approaches. The qualitative discussion will
confirm if the business initiatives are in Furthermore, we consider your industry, market
correlation to the risk management program. position, and competition in positioning your risk
management solution to the changing needs and
As part of our risk management interview direction of your business.
process, we look to confirm that your risk
management approach supports your overall Quantitative analysis supports the qualitative
business objectives. As a business owner, CFO, interview. We look at the “hard numbers” and
Risk Manager or HR Director, what keeps you up prior losses to identify trends in your
at night? If that concern happened, how would performance. We also analyze losses to identify a
your income or cash flow be affected if there variety of variables, such as:
were unforeseen depletions of capital or a
shutdown in the plant? • average incurred costs per loss;
• total incurred trends;
A discussion on the qualitative aspects of your • top loss drivers;
business provides the important details needed • locations with high frequency issues;
to solidify the most appropriate game plan to • fraud behaviors;
your endgame, price. • reporting lag time;
• frequency vs. severity ratios; and
What is your viewpoint on risk? Are you/your • OSHA recordable performance.
company risk averse? Is your company in a
financial position to take on more risk versus
transferring that risk to another party or
contractually to a carrier?
To help determine your risk aversion, it helps to
assess your company history. For example, if
you are a start-up company, cash flow and funds
are typically tight, so you are more likely to be
adverse to risk to protect the financial viability of
your start-up organization.

3. The results of our in-depth analysis will reveal opportunities to approach the critical areas
driving your total cost of risk, price. We will isolate the root causes of these problematic
areas and look to implement control measures to mitigate this exposure.
Implementation of Control Measures
The opportunity spent on the identification of exposures directs us to apply our expert
resources delivering the highest impact on your bottom line. Several control measures are
designed from a pre-loss perspective.
An estimated 75 percent of commercial insurance expenses are claims driven. We look to
control and reduce this percentage through pre- and post-loss control measures.
A comprehensive loss control evaluation points to strengths and weaknesses in loss control
programs. One may have strong management leadership behind his or her initiatives but
have no employee buy-in or participation. Odell Studner has the solutions to establish a
safety committee, delivering a comprehensive employee safety education campaign. Your
business operations will determine the types of measures and approaches to take in
addressing your exposures.
There are many post-loss or cost containment strategies. A proactive and effective Return
to Work program is one strategy that positively affects your bottom line: offering a bank of
modified duty jobs for employees and informing the doctor there is modified work available.
Also, establish a relationship with a local occupational medicine clinic. Interview them to
learn about their services and tour their facilities. Invite the physicians into your business
to get a first-hand look and understanding of your operations. By providing them with the
details of your operations, they can accurately evaluate reported injuries to confirm if they
are work related.
Fraudulent claim behavior can drive the cost of risk out of control. The National Insurance
Crime Bureau often approaches insurance fraud rings between doctors, physicians and
people. Whether it’s an auto accident or alleged workplace accident, send a clear message
that fraud will not be tolerated.
Anti-fraud tactics include educating employees on the effects of insurance fraud through
payroll stuffers and worksite posters, and offering safety incentives for solid performance.
Also, keeping a motor vehicle accident kit in each one of your company vehicles, along with
a disposable camera, allows you to document evidence, providing a stronger subrogation
results.

4. An active Loss Control Program and post-loss
procedures are key to cost containment. Our agency
“Total cost of risk is an insurance term
offers comprehensive resources to employ the most
describing the cost of both pure and
appropriate strategies for your business.
speculative risk. Additionally, cost of risk is
synonymous with price — the price of your
Risk Transfer/Financing
risk management program. We at USI take a
Once we have identified exposures and created
total cost of risk approach to positively affect
control measures, we can focus on the remaining
your price.”
exposures to transfer and/or finance. You will want
to address questions such as: How much risk can
you afford to assume in-house? How can we assist
in contractually transferring that risk to a third We seek a long-term partnership with our clients
party? Lastly, what portion of the exposures do we to address the ongoing changes of exposures
want to finance through an insurance policy? with your organization. Continual monitoring of
the programs in place, as well as future business
Addressing these questions offers a direction as to expansions, will dictate the course of your risk
how to approach the financing of your risk. Think management program.
about current cash flow needs. Are account
receivables current? If there is a lag, how long is it, We highly recommend you:
and are there resources to correct it? • Develop a Strategic Action Plan to put the
needed control measures in place,
Considerations involve self-insured retentions if you including a Disaster Recovery Plan. This
have a mature loss control program and the financial involves backing up your policies and
reserves to cover those shock losses that occur. procedures. We offer 24/7 Web access to
Therefore, a combination of insurance and non- your critical risk management information,
insurance strategies should be considered. Our employee education resources and tools
insurance experts offer many years of experience in to drive down your cost of regulatory
tailoring risk financing programs. compliance: all are ID and password
enabled for your protection.
Manage Your Exposures
It is estimated that 25 percent of businesses that • Offer consistent loss control policies and
sustain a major catastrophe are no longer in procedures to all divisions and
business within a year’s time. If there is an departments within your organization.
interruption in your operations, are you prepared?
• Build a continuous safety culture that
aggressively addresses potential fraud

5. Cost of Risk Resources
To develop the most appropriate risk management
program for your organization, Odell Studner
approaches ‘insurance’ through a variety of
insurance and non-insurance strategies, such as:
• Identification processes (qualitative and
quantitative),
• Loss analysis tools to uncover exposures,
• Implementation of pre- or post-loss initiatives
that address cost containment,
• Business continuation planning/disaster
recovery, Helping you to address today's
• Risk financing options, retained losses or
Property & Casualty Issues
transferred, and
• Regulatory compliance issues.
Contact Gavin McMorrow at
We work with you to develop a strategic action plan,
assist in the execution of the designed risk Gavin.mcmorrow@usi.biz or
management program, and are committed to the
monitoring and support of these initiatives.
(484) 351-4621
If you are interested in reviewing your risk This USI Risk Insights is not intended to be exhaustive nor should any
discussion or opinions be construed as legal advice. Readers should contact
management strategies, contact us at (484)
legal counsel or an insurance professional for appropriate advice.
351-4621 to speak with one of our insurance experts
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